Reddit Q3 Earnings Beat on 53% Revenue Growth, Q4 Outlook Disappoints

A strong quarter that didn't move investors

Reddit's third-quarter report had two parts that pulled in opposite directions. The results themselves were very good. The comments about the future were not, and investors reacted to those.

For the quarter ended September 30, 2026, the company reported revenue of $895 million, up 53% from $585 million a year earlier.11 Net income came to $283 million, or $1.40 per diluted share. Both figures rose more than 70% from a year ago, and net income equaled 32% of revenue.11 Adjusted EBITDA was $402 million, a 45% margin, and operating cash flow nearly doubled to $364 million.11 Over the trailing twelve months, Reddit has now brought in more than $3 billion in revenue.11

The shares fell sharply anyway. They dropped about 17.8% in after-hours trading to $106.50, down from a regular-session close of $129.60.2 By the next morning, Benzinga had them down 21.6% in pre-market trading at $101.60.1 Reports of the size of the fall differ depending on when they were written. CoinCentral put the pre-market drop near 22%.9 24/7 Wall St. reported a 25% fall in morning trading.10 Every account agrees on the main point: the stock fell steeply even though Reddit beat expectations.

The beat: clear, but the size depends on whose estimate you use

Reddit beat on both earnings and revenue. How much it beat by depends on which consensus figure you use, and the published figures vary.

Investing.com and StreetInsider used a revenue estimate of $874.9 million and an EPS estimate of $1.33. Against those, revenue beat by about $20 million, or 2.3%, and EPS beat by seven cents, or 5.3%.25 StockStory, writing on Yahoo Finance, used S&P's consensus of $877.2 million in revenue. That makes the revenue beat about 2%, with a 5.6% EPS beat and a narrow 1.3% beat on adjusted EBITDA.6 Benzinga used $878.02 million in revenue and $1.36 per share.1 Shacknews used a higher revenue estimate of $886.34 million and an EPS consensus of $1.31.3 Zacks measured the revenue beat at less than 1% and the EPS beat at 6.87%.8

Those differences change the story more than they first appear to. Under the most common figures, the revenue beat was about 2%. That is solid but smaller than the large beats Reddit's growth investors have come to expect. Shacknews added one more data point: EPS of $1.40 fell short of a "whisper number" of $1.51.3 A J.P. Morgan analyst raised the same issue on the earnings call, asking why the Q3 upside was smaller than in earlier quarters.16 CFO Drew Vollero said Reddit starts each quarter with only about half of its business already booked. He added that demand was heavily concentrated in September, and some strong booking days could not be fully delivered.16

In short, the beat was real but modest. A modest beat gave Reddit little cushion when the guidance came out.

Where the growth came from

Advertising still makes up almost all of Reddit's revenue. Ad revenue rose 54% to $847 million, and other revenue, mostly data licensing, grew 35% to $48 million.11 Advertising came in above the roughly $830 million analysts had expected.9

Most of the growth came from charging more per ad, not from showing more ads. The company's 10-Q says ad growth came mainly from higher pricing and, to a lesser extent, more impressions.12 Management said click volume grew more than 50% and conversion volume more than tripled. Those figures help explain why advertisers accepted higher prices.2 Revenue from scaled advertisers grew more than 80%, and the number of mid-market advertisers rose more than 50%.13 Video ad revenue more than doubled. Adoption of the automated Reddit Max product more than tripled from the previous quarter.8

International revenue grew faster than U.S. revenue: 67% to $176 million, against 50% to $719 million in the U.S.11 U.S. revenue per user rose 53% to $13.82. International revenue per user rose 32% to $2.43, which leaves plenty of room to grow.11

The profit gains came from costs growing more slowly than revenue. Adjusted costs rose 41% to $493 million while revenue grew 53%. Adjusted operating expenses fell to 47% of revenue from 51% a year earlier.13 Gross margin was 91.5%, the ninth straight quarter above 90%.19 Capital spending was only $1.2 million, which shows how little Reddit spends on physical infrastructure.13 Reddit also bought back about $100 million of its own stock in the quarter. It still has about $660 million left under its current buyback authorization.2

The guidance problem

The guidance caused the selloff. Reddit expects fourth-quarter revenue of $1.0 billion to $1.03 billion, which works out to 38% to 42% growth.2 Analysts' estimates ranged from about $1.04 billion to $1.05 billion, so the whole range fell short.1610 StockStory calculated that the midpoint was 2.8% below consensus. Adjusted EBITDA guidance of $480 million to $510 million also came in below the roughly $509 million analysts expected.62

Going from 53% growth to a projected 40% is a big slowdown in one quarter. It is especially notable because, as CEO Steve Huffman pointed out, the 53% came on top of nearly 70% growth the year before.14

Google's AI search is now a known risk

If the guidance had been the only issue, analysts might have blamed a tough comparison with last year. What made it worse was the reason management gave. Reddit said Google's AI Overviews and AI Mode are cutting the traffic Google sends to Reddit, especially from users who aren't logged in.2 Huffman said search referrals fell by more than one million visits a week in October.10 Motley Fool's summary describes October's drop in search traffic as significant. It also notes that logged-in and app users still account for more than 80% of monetization.

User numbers backed up the concern. Daily active uniques rose 12% to 130.3 million, below the 134 million analysts had expected, according to FactSet. U.S. users fell 2%.9 The Yahoo Finance call summary says management warned that daily active uniques could decline at a low double-digit rate in the fourth quarter.19 Weekly active users were reported differently: one outlet said they grew 28%, another said 16%.157 Either way, the shortfall in daily users is what caught analysts' attention. Jefferies analyst John Colantuoni wrote that worsening U.S. user losses tied to AI Overviews overshadowed the strong revenue and EBITDA growth.10

Reddit plans to depend less on Google by requiring users to log in. It will test a logged-in-focused experience in select markets outside the U.S. during the fourth quarter.2 Huffman argues the product works best when personalized for logged-in users. He says logins also improve ad targeting and make it harder for outside companies to scrape Reddit's content.2 The downside, as 24/7 Wall St. notes, is that Reddit may lose many casual visitors.10 Much of the call's Q&A focused on whether a lighter version would remain for logged-out users and how much traffic the change could cost.2

How analysts responded

Several analysts cut their price targets the next morning. Cantor Fitzgerald kept its Neutral rating but lowered its target from $170 to $120. Needham kept its Buy rating but cut its target in half, from $300 to $150. KeyBanc downgraded the stock from Overweight to Sector Weight.1

Some see the drop as overdone. Investing.com cited a P/E ratio of about 30 and a PEG ratio of 0.11 and argued the shares look undervalued.2 GuruFocus noted the P/E is far below its five-year median of 86.8x.7 The stock was already down 44% for the year before the report.10

Our read

The quarter looks like a turning point in how investors value Reddit. Its main strengths are still intact. Reddit is charging advertisers more, margins are high, it has $3 billion in cash, and management has set a $5 billion revenue goal.211 But growth investors pay for future growth, not past quarters. Reddit has now told them that Google, the largest source of new visitors, is sending fewer of them. Most of Reddit's revenue already comes from logged-in users, so the business will probably hold up. The open question is whether growth can stay near 50% while traffic from Google shrinks. After this quarter, the market doubts it can, and only results over the next few quarters will settle that.